30 August 2016
Here are some tips to help you get your foot on the investment property ladder.
You only have to look at people like Donald Trump and the late Duke of Westminster to realise that property investment can be lucrative. Indeed, according to Forbes, 22 people made it onto the Forbes Billionaires’ List for the first time this year, thanks to their real estate holdings. And this at a time when it could be argued that global real estate markets aren't performing at their peak.
Of course while not everyone who opts for the property investment option is going to make a mint and start flying around the world in their private jet, there is money to be made. But perhaps more importantly, property offers security and to a large extent, peace of mind.
So just how does one go about finding the perfect investment property, one that is going to continue to offer excellent rental returns and grow in value? You know the adage ‘slow and steady wins the race’? Well, this applies particularly to investment properties.
Research the market
As with anything, investors need to be thoroughly educated about the relative markets before they start investing their hard earned money. Remember that just because property markets are doing well in places such as Cape Town and Gauteng, this doesn't mean it is a given that this applies everywhere in the country. Likewise, simply because your first cousin three times removed made a killing in a particular area back in 2014 doesn't mean that the same results will be guaranteed once you decide to start investing. Bear in mind that unlike investing in the stock market which may only set you back a couple of rands per share, property is always going to involve serious capital.
Get your finances in order
As a starting point, take a long hard look at your debt and pay off as much of it as you can before you start investing. Settle any outstanding student loans, clothing accounts and the like. Then reevaluate your financial position. Property isn't a short term commitment and it is therefore advisable to look at any short term future debts that will undoubtedly be popping up over the next year or so. For instance, it may be wise to delay purchasing if you are planning to send your child to university.
Being a landlord isn't for everyone. For example, do you have the expertise to do minor repairs? (You might have to put off picking out that jet if you have to call in a handyman for every little snag).
What's happening with interest rates?
Even with the recent rate hikes, South Africa's interest rate remains fairly low. However, it has to be remembered that banks ultimately decide how much interest they are going to charge. Yes, we know there are limits, but this doesn't mean that they won't charge a higher rate of interest on an investment property. They could also demand a higher deposit.
Be wary of a fixer-upper
The experts warn against buying a ‘fixer upper’ as your first investment property. It may be tempting to go out and buy the cheapest property available, but these tend to be homes that require a lot of work and a great deal of money to get shipshape. Renovations generally cost big money and unless you are skilled enough to carry out the work on a shoestring yourself, or have a close friend or family member you can call upon, you’ll probably spend too much on the improvements. However, finding a good buy doesn't necessarily mean that the home is in a bad state of repair. Again, do your homework, bide your time and invest in a property that is going to start making you money right from the start.
Find a property in the right location
Yes, we know YOU know that the three most important words in real estate are ‘location, location, location’, but this is particularly important when it comes to rental properties. In a city, look for property close to schools, shopping centres and restaurants. In the suburbs, try and find something close to schools and shops.
Keep things realistic
Remember how tough things were when you first bought your home? Well it's often the same when you buy your first investment property. Don't expect to make a fortune from the very start. Rather focus on finding the right property and getting a solid, reliable tenant in place. The money will come, and when it does it may be time to start looking at a second property.
Article orginally on Private Property